Key Points
-
Historically, remaining invested in S&P 500 index funds has been a good move for investors.
-
Having broader exposure to the stock market may not necessarily reduce risk or improve returns.
The stock market looks unstoppable these days. The S&P 500 has been flying high again in 2026, rising by around 13% as of Tuesday’s close. It’s hit record highs, with plenty of excitement still in the air, centering around tech stocks and, in particular, artificial intelligence.
Many investors, however, may be growing concerned that with the S&P 500 being on track for a fourth consecutive year of outperforming its long-run average return of about 10%, it may be due for a pullback. And if that’s the case, perhaps other investments may make more sense, such as tracking the entire market through an exchange-traded fund (ETF).
Missed Nvidia in 2009? This Rare Signal Is Flashing Again.In 2009, a “Double Down” signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same “Total Conviction” signal is flashing for a company 1/100th the size of Nvidia. Continue »
&&
Are S&P 500 index funds still worth investing in, or are investors better off investing in funds that provide exposure to the entire stock market? Let’s take a look.
Image source: Getty Images.
The S&P 500 may be risky these days, but not necessarily over the long term
For multiple years now, there have been concerns about rising valuations and whether the stock market may crash. The topic inevitably comes up when stocks are rising rapidly.
The problem is that trying to predict crashes and trying to time the market is next to impossible. Rallies can go on indefinitely, and sky-high valuations can reach new heights. That’s why a buy-and-hold strategy can make a lot of sense for investors. Tracking the S&P 500, an index of leading stocks on U.S. markets, has generally been a good move for investors over the long haul. While there will be crashes along the way, remaining invested can still be a good move.
The Vanguard S&P 500 ETF (NYSEMKT:VOO) gives investors exposure to the index while charging a low expense ratio of only 0.03%, making it appealing for long-term investors. Over the past five years, it has delivered total returns (including reinvested dividends) of around 87% — and that’s even if investors held on during the 2022 crash, when the S&P 500 nosedived more than 19%.
The S&P 500 has always recovered from every market downturn. It’s batting 100%. And even if there is a crash in the near future, as long as investors are willing to hang on for the long haul, simply tracking the index through an ETF such as VOO can be a practical option.
Tracking the entire stock market may not make investors any safer
Through the Vanguard Morningstar Total Stock Market ETF (NYSEMKT:VTI), investors can get a more comprehensive mix of stocks, not just ones that are in the S&P 500. The ETF offers the same low expense ratio of 0.03%, but the difference is that it holds more than 3,500 stocks. There’s considerably more diversification with this ETF, which is what risk-averse investors may be seeking right now.
The sobering reality, however, is that it likely won’t make a difference. In 2022, this ETF actually did worse than the Vanguard S&P 500 fund. It declined by 19.5% when factoring in dividends, while the S&P 500 ETF declined by more modestly, at over 18%. And when looking at the past five years, its total returns are right around 80%, also lower than that of the S&P 500 ETF.
The key thing to remember is that the S&P 500 is a collection of the leading stocks. They lead the market. If they do well, the market does well. It’s hard to envision a scenario where the top 500 stocks are doing poorly, but the rest of the market isn’t. Simply adding more stocks and diversifying isn’t necessarily going to be the solution.
Investors may prefer to invest in dividend stocks or certain sectors to reduce risk and minimize exposure to tech stocks, but investing in the entire stock market through an ETF may not necessarily be better than just tracking the S&P 500.
Should you buy stock in Vanguard S&P 500 ETF right now?
Before you buy stock in Vanguard S&P 500 ETF, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Vanguard S&P 500 ETF wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Netflix made this list on December 17, 2004… if you invested $1,000 at the time of our recommendation, you’d have $419,408!* Or when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $1,348,694!*
Now, it’s worth noting Stock Advisor’s total average return is 966% — a market-crushing outperformance compared to 213% for the S&P 500. Don’t miss the latest top 10 list, available with Stock Advisor, and join an investing community built by individual investors for individual investors.
*Stock Advisor returns as of August 19, 2026.
&&
David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.